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WebSummit 2018 - The SaaS Business Model & Metrics

SaaS businesses are extremely sensitive to a small number of important variables. If you are running a SaaS company, understanding how these variables drive your business model is crucial to long-term success. In this talk, David Skok, author of the now famous SaaS Metrics 2.0 blog post will talk through those key metrics and their impact on the overall SaaS business model.

5.
SaaS Valuations: Driven by Growth + Profitability
Growth Rate (% YoY) + Operating Profit (% of Revenue)
Enterprise Value
Gross Profit
Sometimes known as
the ”Rule of 40” as
the ideal is that the
sum of these two
numbers is greater
than 40
Note: the industry norm is to look
at Enterprise Value as a multiple of
Revenue, which yields a similar
graph, but with a wider dispersion
(lower correlation coefficient).
Credit goes to Jared Sleeper of
Matrix Partners for using Gross
Profit instead of Revenue to get a
better predictor of Enterprise Value

42.
Negative Churn – Crucial for Long Term Success
Revenue Lost with
2.5% monthly Churn
Renewals
Lost due
to Churn
YEAR 3
$3m $7m
Becomes harder
& harder to
replace this with
new bookings
Renewals
Lost due
to Churn
YEAR 6
$30m $70m

53.
“The thing that surprises many investors &
boards of directors about the SaaS model is
that, even with perfect execution, an
acceleration of growth will often be
accompanied by a squeeze on profitability and
cash flow.”
Ron Gill, CFO at Netsuite

54.
When your SaaS business
is losing money at an
increasing rate, how can
you tell if the business is
going to work eventually?

56.
Months to recover CAC can dictate acquisition spending
If we make $10k from the customer in the first 12 months…
We can afford to spend up to $10k to acquire them

57.
The Power of Unit Economics applied to Segments
Brad Coffey, HubSpot
“When we started this analysis, we had 12 reps selling directly into the VSB market and 4 reps selling through Value Added Resellers (VARs). When we
looked at the math we realized we had a LTV:CAC ratio of 1.5 selling direct, and a LTV:CAC ratio of 5 selling through the channel.
0
1
2
3
4
5
VSB VARs
LTV:CAC
0
3
6
9
12
VSB VARs
No of Reps